May 28, 2010

Since its inception two and a half years ago, the legal process outsourcing (LPO) unit of Indian IT/BPO giant, Infosys Technologies, has been quietly stepping up its capabilities and operations, according to an interview just published by Matthew Sullivan on his Global Legal blog. Rahul Shah, Practice Head of Infosys LPO, reports in the interview that although the company has "been late in marketing [its] services," it has not been idle: "In the last 2 years, we have been busy ramping up on our significant clients in this space," says Shah. In particular, Infosys LPO has been developing its practice areas, training its non-lawyers at its impressive training center in Mysore, and gathering and maintaining a substantial roster of U.S. and U.K. clients:

Infosys LPO offers Contract Management including our own Contract Administration Platform called ICAP, Intellectual Property services, Litigation & Administrative Support, Document Review, Legal Research and Legal Services Consulting.... Our major clients include – a large legal publishing firm, a Magic Circle law firm, a globally recognized courier company, Fortune 5 oil and gas company, large financial publisher, a life insurance giant and so on.... Most of our employees are subject matter experts for the various service offerings we have and they are lawyers as well as non-lawyers. The non-lawyers undergo extensive training at our world class training facilities in Mysore before joining any project.

Also according to Shah, Infosys sees the present opportunity for the legal services outsourcing industry as approximately $350 million per year, with significant potential to further grow and capture more of the global legal spend, which is now up to $550 billion or more:

There are a lot of numbers out there in press and reports on how much this industry is worth and at present we think the industry opportunity is in USD 350 million area. Having said this, the global legal spend is upwards of USD 550 billion, which is huge and offers a significant growth potential for Infosys given the fact that general counsel and law firms are exploring alternative delivery models to tackle cost pressures, need for creating capabilities in emerging markets and reinventing themselves to morph into the lawyers office of the future.

Infosys Technologies is an amazing and inspiring Indian success story. Back in 1981, its seven young founders quit their jobs and endured poverty for years, while they chased their dream: to found an Indian-owned, global software company that would rival the IT industry in the West. They succeeded, to the point where, under the theory that "if you can't beat 'em, join 'em," even Microsoft and IBM have hired the 75,000-employee company. But when Narayana Murthy and his six friends first formed Infosys, it had only 10,000 rupees ($217) and one client (a small Indian company). As reported by Rediff.com:

There was no luxury, only struggle, day and night. They had no car, no phone. Murthy later recalled that it was not the luxuries of life, but the passion to create something new and innovative that made them keep going on and on and on. Infosys was not able to get a single U.S. client until six years after it formed, in 1987. The company was able to establish a partnership with a U.S. venture firm, but the joint venture collapsed in 1989, leaving Infosys in the lurch. One of the Infosys founders, Gopalakrishnan, relives the memories of those days: "We had nothing after eight years of trying to bring up a company. Those who studied with us had cars and houses," he says. The collapse of the joint venture led Infosys to its first crisis. The company was on the verge of collapse. One of the founder-partners -- Ashok Arora -- was dejected with the way the company was going, and decided to quit. The others did not know what to do. But Murthy had the courage of conviction. "If you all want to leave, you can. But I am going to stick (with it) and make it," Murthy told them.... And thus began to germinate the seeds of Infosys' enormous growth.

The problems of the still-nascent legal outsourcing industry are microscopic, compared to the hardships that the founders of Infosys endured. In many ways, Infosys paved the way for our industry. Now that Infosys is starting to work its magic in our field as well, we wish them all the best.

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Should lawyers be scared of abandoning the hourly Billing Rate?
Law firms today are facing increased pressures from corporate counsels to reduce their external legal spend. They have been caught in a pincer grip of a slackened economy on one hand and reduction in work from clients on the other, resulting in a demand to lower both the quantum of billing and the billing rates. They need to adapt to this changing market scenario and the unimaginative ones will see their earnings do down. But, this market also offers growth opportunities for those firms who are ready to change, and are ready to look at the value they offer to the clients in a different way.
Reduced billing rates need not mean reduced profits per partner. You can increase the leverage smartly; reduce cost of delivery, increase efficiency of resources deployed, increase the billing amount the lawyer retains and at the same time reduce the amount you would bill your customers.
Traditionally, the alternative billing methods pioneered by DuPont include:
• Flat fees for repetitive, predictable services
• Discounted fees in exchange for performance bonuses (based on cost savings)
• Blended rates for any resources used - from Senior Partner to paralegal - that should push the firm to use lower level employees when possible
• Volume discounts that discount hourly rates as the volume increases
• Capped fees, which may be a gamble, but can provide predictability
Striking upon the right billing model is a challenge for most law firms, and it has been seen that alternative billing models will be more in vogue going forward. Manthan seeks to add a new dimension to enable alternative billing models to work for firms, by dramatically reduce the cost of delivery if they leverage a team of lawyers in India to deliver a substantive portion of select processes. Law firms will find it easy to retain their profits per partners in a comfortable zone only if they can seek an increased leverage, offered by offshore outsourcing. Offshore outsourcing works best if you offer flat fees, capped fees or blended rates.
Let’s take a case in point:
1. Cost of drafting a typical contract in US: $3000
2. Cost of drafting the same contract in India + Cost of review by attorney in US: $750
The labor arbitrage between US and India is 8:1 (Billing rates of $300 an hour for an associate in the US versus $40 an hour in India) and hence deploying offshore support to do most of the repetitive, predictable and well defined legal tasks shall deliver dramatic increases in profits per partner for a law firm.
By Gururaj Potnis
CLO – Manthan Legal Serviceshttp://www.manthanlegal.comhttp://www.manthanlegal.com